Here’s Why Traders Are Scared After Bitcoin’s 8% Drop to $6,600

After the weekly close at the end of Sunday, Bitcoin tanked. The cryptocurrency rapidly fell from the $7,200 weekend highs to a low of $6,580 — all over the course of an explosive three-hour drop. With this, dozens of millions of BitMEX long positions were liquidated, forced to close as sell-side pressure mounted.

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Bitcoin has since stabilized, trading at $6,725 as of the time of this article’s writing, in line with the slight recovery in the value of the S&P 500’s futures, which fell as BTC fell earlier this trading session. Analysts, however, are fearful that a further drop is on the horizon.

Bitcoin Poised to Fall Even Lower

Mohit Sorout — a partner at crypto hedge fund Bitazu Capital — Bitcoin is in the midst of forming a “valid head and shoulders top” on its one-hour chart after the recent volatility, adding that the indicator is “one of the most reliable classical patterns.”

The chart he shared indicates that the cryptocurrency is following the textbook chart pattern to a T, forming three consecutive tops in a shape that resembles the head and shoulders of a human while printing consecutively lower bout of volume.

Sorout, who called Bitcoin’s recent rally to $7,200 when the asset was trading at $6,800, sees BTC falling to $6,000 if the textbook pattern plays out in full.

To add to this, another popular crypto trader suggested that Bitcoin is in the midst of falling below a textbook bearish chart pattern that marked the $10,500 top in February, a rising wedge. Should BTC trade as it did after it fell out of the previous wedge, it is in for a steep correction, many traders are fearing.

The fears of Bitcoin undergoing an even more deep correction have been compounded recently with that last week’s candle closed a “shooting star,” which are often seen at the top and bottom of trends. This recent shooting star may signify a top, then a reversal back to or to near the lows.

All these signs in confluence add to the sentiment that BTC is not yet done falling.

Traders Are Getting Ready for Further Drop

Traders are preparing for this opportunity.

In the three hours after the drop began, BTC-denominated open interest on BitMEX’s Bitcoin market has risen by approximately 3,000 coins from 71,000 to 74,000 while the price has sunk,  data indicates.

Although it isn’t clear what side traders are taking, short-selling seems to be ramping up as  that throughout this drop, the predicted/expected funding rate on BitMEX positions has fallen from -0.0112 percent per eight hours to -0.0845 percent. As shared by popular crypto trader CL:

“ATM, people are paying 6.5% APR $$$ interest to short BTC on futures.”

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